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United States v. Apollo Group

November 6, 2009

UNITED STATES OF AMERICA, THE STATE OF CALIFORNIA, AND STEPHEN LEE BRODALE, AN INDIVIDUAL, PLAINTIFF,
v.
APOLLO GROUP, INC., A CALIFORNIA DOC. NO. 18 CORPORATION, D/B/A/ UNIVERSITY OF PHOENIX; AND KIM SAVICH, KYAN FLYNN, JENNIFER BRODIE, AND MATT JOHNSTON, AS INDIVIDUALS AND AGENTS OF APOLLO GROUP, INC., AND DOES 1-50, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Hon. Jeffrey T. Miller United States District Judge

ORDER GRANTING DEFENDANT'S MOTION TO OF COMPLAINT DISMISS THE FOURTH AND FIFTH CAUSES OF ACTION

On August 1, 2008, qui tam relator, Plaintiff Stephen Brodale, filed this complaint on behalf of the United States and the State of California against Defendant Apollo Group, Inc, its subsidiary University of Phoenix, and individual employees, Kim Savich, Kyan Flynn, Jennifer Brodie, and Matt Johnston. Brodale alleges six causes of action, four of which have been submitted to arbitration. The remaining two counts, counts four and five, are qui tam whistleblower claims. Count four was brought as a qui tam action claiming violations of the Federal False Claims Act ("FCA"), 31 U.S.C. § 3729. Count five was brought as a state qui tam action claiming violations of California Government Code § 12650.

On September 14, 2009, Defendant moved to dismiss counts four and five based on the following three reasons: (1) counts four and five are jurisdictionally barred by the FCA's first-to-file rule, (2) Plaintiff failed to comply with particularity requirements of Federal Rules of Civil Procedure ("FRCP") 12(b)(6) and 9(b), and (3) Plaintiff failed to satisfy the procedural filing requirements associated with FCA claims.

On October 8, 2009, Plaintiff responded to Defendant's motion to dismiss asserting that (1) counts four and five are not sufficiently related to a pending qui tam action as to be jurisdictionally barred by the first-to-file rule, (2) the complaint does allege facts sufficient to satisfy the particularity requirements of Rule 12(b)(6) and Rule 9(b), and in the alternative he should be given the opportunity to amend, and (3) he complied with FCA's procedural requirements.

The court finds this matter appropriate for decision without oral argument. See CivLR 7(d)(1). For the reasons set forth below, the court GRANTS Defendant's motion to dismiss counts four and five.

I. BACKGROUND

On September 1, 2004, Stephen Brodale was hired as Director of Financial Services by Apollo Group, Inc. to oversee the financial aid department of the University of Phoenix's ("University") San Diego campus. (Compl. ¶ 14). Brodale alleges that the University's Director of Enrollment, Kyan Flynn and the Senior Director of Finance, Jennifer Brodie, acted illegally and fraudulently, at the direction of Campus Directors, Kim Savich and Matt Johnston, as well as the University itself, to encourage and facilitate the falsification of federal financial aid documents for prospective and current students. (Compl. ¶ 17). Brodale alleges that the actions of the University's employees were authorized and ratified by the Apollo Group, Inc. ("Apollo") as owner and operator of the University. Id. Brodale claims that Apollo paid enrollment counselors based on their enrollment activities regardless of the financial qualifications of applicants or the ability of applicants to complete their education. Id. This incentive or commissioned based pay system encouraged employees to engage in illegal fraudulent activities in order to gain increased pay and to maintain their jobs.

In or about August or September 2006, Brodale began complaining to the University about the fraudulent and illegal actions of the enrollment staff. (Compl. ¶ 18). Brodale's complaints included evidence of staff coaching prospective and active students to lie about their income and number of dependants on their financial aid applications, to change their income, and in some cases fraudulently completing the forms themselves and forging student signatures. Id.

Brodale further alleges that the University responded to his allegations by writing him up, giving him poor performance reviews, orchestrating fraudulent evaluations, demanding unrealistic performance expectations, and generally conspiring to terminate him. (Compl. ¶ 19). Brodale claims that the conspiracy on the part of the University and Apollo to terminate him was retaliation for his blowing the whistle on the improprieties of the enrollment department. (Compl. ¶ 20).

On January 14, 2008, Brodale was terminated by the University. Id. Thereafter, on August 1, 2008, Brodale filed this complaint against Apollo Group, Inc., University of Phoenix, and the individually named defendants.

II. DISCUSSION

The False Claims Act imposes liability upon those who submit a false or fraudulent claim for payment to the United States Government. 31 U.S.C. § 3729(a); Campbell v. Redding Medical Center, 421 F.3d 817, 820 (9th Cir. 2005). The qui tam provisions of the False Claims Act encourage private parties, referred to as "relators," who are aware of fraud being perpetuated against the government to sue for a civil penalty on behalf of the government. 31 U.S.C. § 3730(b)(1). Once the complaint is served on the government, within 60 days, the government must elect to either proceed with the action itself, or notify the court that it declines to take over the action, in which case the relator has the right to pursue the action. 31 U.S.C. § 3730(b)(4).

A. Count Four Should be Dismissed Pursuant to the First-to-File Rule

Plaintiff's FCA claim is dismissed under FRCP Rule 12(b)(1) as jurisdictionally barred by the FCA's "first-to-file" rule. Brodale asserts allegations already the subject of the pending qui tam action United States ex rel. Hendow v. University of Phoenix, Case No. ...


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